The material contained in this presentation has been prepared solely for informational purposes by...

The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”), and is not to be distributed outside of the organization to which it is presented. The material is based on sources believed to be reliable and/or from proprietary data developed by GR-NEAM, but we do not represent as to its accuracy or its completeness. This is not an offer to buy or sell any security or financial instrument. Certain assumptions, including tax assumptions, may have been made which have resulted in any returns detailed herein. Past performance results are not necessarily indicative of future performance. Changes to the assumptions, including valuations or cash flows of any instrument, may have a material impact on any results. Please consult with your tax experts before relying on this material. Additional information is available upon request. This document and its contents are proprietary to GR-NEAM. They were prepared for the exclusive use of your company. Neither this document nor its contents are to be given or discussed with anyone other than employees, directors, trustees or auditors of your company without our prior written consent.

Presented by Jerry Lynch

Life After Stimulus:

When Reflation Meets Deleveraging

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Conclusions

Deleveraging

Recession

Policy Response

Global

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U.S. Real Economic

Growth

Fiscal/ Monetary Stimulus

Global Forces

Secular Cyclical

Stimulus

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Where Are We Now?

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Real GDP Growth

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Unemployment Rate vs. Broader Total Unemployed*

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Source: www.calculatedriskblog.com

New Home Sales and Recessions

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U.S. Real Consumer Spending

Y/Y % Dec. – 1.7%

Source: ISI

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Source: Federal Reserve Board, Merrill Lynch

Capital Utilization

Manufacturing (SIC) SA, % of Capacity

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World Industrial Production

Source: Big Picture.com

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Sources of Remittances by Recipient Regions, 2008

Source: Global Economic Prospects 2006: Economic Implications of Remittances and Migration (World Bank). World Development Indicators 2007 and Global Development Finance 2007

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Classic Non-Classic

Recession

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Classic RecessionCharacterized by:

• Inventory cycle• 80% of decline in GDP due to de-stocking in manufacturing sector• Traditional stimulus almost always works to absorb excess by stimulating demand• Lasts 18 months

Non-Classic Recession

Characterized by:

• Balance sheet compression• Deleveraging• Debt elimination• Rising saving rates• Expansion of government’s balance sheet to offset contraction in private sector• 3 years or more

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Job Losses in Recent Recessions

Current RecessionCurrent Recession

Source: www.calculatedriskblog.com

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Job Losses* in Post WWII Recessions

Current Recession

Source: www.calculatedriskblog.com

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Job Losses in Post WWII Recessions

CurrentRecession

Source: www.calculatedriskblog.com

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Confidence New BankingSystem

Low Interest RatesLiquidity

LeverageLeverage

Leverage

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Claims of Banks on East European Countries, as % of GDP

Source: Big Picture.com

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Leverage

Deleveraging

Deleveraging is a process not an event.

Deleveraging

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Components of GDP

Consumption 70% +

Investment 16% +

Net Exports <1>% +

Government 15%

Source: BLS, GR-NEAM Analytics

=GDP 100%

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Total U.S. Debt

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The Leveraging of America

Source: Federal Reserve, via Haver Analytics The New York Times April 4, 2009

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Leverage

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Consumer

Source: NY Times

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Consumer

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GDP Growth: With and Without Mortgage Equity Withdrawal

GDP Growth

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Record Wealth Implosion

Source: Federal Reserve Board, Merrill Lynch

Households & Nonprofit Organizations: New Worth Difference – Year to Year NSA, Bil$

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Market Cap

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Stimulus

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Summary

(in billions)

Disbursements or Committed Funding

Potential

Federal Reserve 1,238 4,316

Treasury 332 3,912

Other Agencies 1 2,207

1,571 10,435

(in billions)

MEMO: U.S. Nominal GDP, Estimated 2008 $14,500 Billion

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GDP in U.S. Dollars

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

UnitedStates

Japan China Germany France UnitedKingdom

Italy Russia U.S.BudgetDeficit

Spain

'09

GD

P U

.S. $

(in

bill

ion

s)

Source: www.ritholtz.com

GDP in U.S. Dollars

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Mean Reverting Process

It’s a Non-Classic Recession

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PCE as a % of GDP & Population Demographics

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Personal Consumption Expenditures (PCE) & Household Debt

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Savings Rate Must Rise, And It Will

Source: Bureau of Economic Analysis, Merrill Lynch

Personal Saving Rate SAAR, %

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U.S. Homeownership Rate From 1965-2008

60

61

62

63

64

65

66

67

68

69

70

1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009

Annual Home Ow nership Percentage Average Home Ow nership Percentage from 1965 to 2008

Source: GR-NEAM Analytics

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Source: Federal Reserve Board, Merrill Lynch

Total Household & Business Credit/GDP: Ratio

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Ability of Policymakers to:• Recreate Credit Cycle • Reinflate Asset Values • Ignite a Consumer Led Recovery

Conclusion

Inhibited by Secular Change in Attitudes Toward:•Savings•Credit•Discretionary Spending•Homeownership

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New Normal

Global Economic Drivers

China

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Chinese Banks’ New Loans

(200)

0

200

400

600

800

1,000

1,200

1,400

1,600

Apr 04 Sep 04 Feb 05 Jul 05 Dec 05 Jun 06 Nov 06 Apr 07 Sep 07 Mar 08 Aug 08 Jan 09

(bn yuan)

Source: CLSA

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Capital Markets

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Worst Decade Yet

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Growth in Total U.S. Credit Market After-Tax U.S. Corporate Profits

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10yr U.S. Corporate A vs. 10yr U.S. Gov’t on the Run

Source: GR-NEAM Analytics

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Growth Story

Currency

Foreign Sales Trade

Inflation

Energy

Theme CyclicalSecular

Collapse in Demand

Deflation

Domestic

United States $

United StatesDeveloping Economies=

Restrained Capacity=

Higher Inflation=

International=

???=

=

Source: ISI

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Major Foreign Holders of U.S. Treasuries

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Foreign Exchange Reserves

2000

($ in Trillions) percent

$1.94 100%

0.78 40

1.16 60

2007(3rd Quarter)

($ in Trillions) percent

$6.0 100%

1.44 24

4.56 76

Total

Industrial Countries

Developing Countries

Source: IMF

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Composition of Foreign Exchange Reserves (Allocated)

2000 2007 2000 2007 2000 2007

U.S. Dollars 71% 63.8% 72% 69.7% 69.7% 60%

Pounds Sterling 3 4.7 2 3 3.5 6

YEN 6 2.7 6.1 3.1 5.8 2.5

Swiss France 0.5 0.2 0.2 0.2 0.3 0.1

Euro's 18 26 18 22 19.4 29

Other 1.5 2.1 1.7 1.6 1.3 2.5

Total Industrial Developing

Source: IMF

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Dollar Dominated

Note: Currencies have not been identified for another $2,536 trillion in foreign-exchange reserves

Source: International Monetary Fund

What currencies nations of the world keep their reserves in

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Source: International Monetary Fund

Note: Currencies have not been identified for another $2.67 billion in industrialized countries’ foreign-exchange reserves and another $2.533 trillion in developing countries’

reserves.

The Haves & The Have Moresforeign-exchange reserves, in trillions; quarterly data

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Total Workforce (LHS) /Total Employed (LHS)vs. Civilian Non-institutional Population (RHS)

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Source: Chinese Central BankThe New York Times April 13, 2009

Cutting Back

Quarterly growth in China’s foreign reserves, mainly invested in Treasuries and other American bonds, has slowed significantly

China’s quarterly change in foreign reserves